We investigate the importance of corruption in shaping the profit-shifting behaviour of multinational firms. Using country-level panel data, we find a significant and positive correlation between corruption and profit shifting. Our findings are consistent with several theoretical arguments predicting that corruption may both facilitate and provide an incentive to firm behaviour that deprives poorer countries of much needed tax revenues. Our findings are robust across a number of corruption and profit shifting measures, as well as to an instrumental variable approach that controls for the potential endogeneity between profit shifting and corruption. Our findings also indicate a negative and significant relationship between financial secrecy and outward profit shifting. We conclude that corruption and financial secrecy undermine global efforts to tackle profit shifting by multinational firms.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.